Status quo pharmaceutical companies face an innovation paradox. Drugs with longer clinical trials face shorter effective patent terms, biasing research towards short-term medicines.

In medicine today, we face an innovation paradox. Companies that develop new medicines depend on a period of exclusive marketing after approval, to fund their research and development programs. This period is made possible by patent protection and regulatory data exclusivity. But when a particular premarket research and development program is more challenging and time consuming than other programs, the period for exclusive marketing is not longer and may, in fact, be shorter. This is a paradox; the relationship between the incentive (exclusive marketing) and the behavior we seek to encourage with the incentive (research and innovation) is the opposite of what one would expect. The scheme contradicts itself.1 This Article explores the drug innovation paradox, using scientific and historical regulatory sources and a new dataset constructed from publicly available sources. Its findings have profound implications for innovation policy. The length of the premarket period may correlate with particular drug types, disease targets, and studied outcomes, which means we may not be providing adequate incentive to develop new medicines in entire areas of need. Federal patent law stimulates scientific and technological progress – innovation – by ensuring that innovators can enjoy a period of exclusivity in their inventions, meaning a period during which no others may manufacture and sell embodiments of their inventions.2 Federal drug law prohibits the sale of new medicines, however, until those medicines have been approved by the U.S. Food and Drug Administration (“FDA”).3 The tension between these two frameworks – one protecting exclusivity in an invention, the other precluding commercialization of that invention – gives rise to the paradox that is the topic of this Article. Obtaining approval of a new drug generally entails testing the medicine in a laboratory and in animals (“preclinical” testing) and then completing several rounds of trials in humans (“clinical” trials), followed by preparation and submission of a marketing application. This process can take years and can cost in the high hundreds of millions of dollars (or more), and its outcome is uncertain.4 After a new medicine reaches the market, it may face competition from other medicines for the same condition, but it generally enjoys a period of exclusive marketing before FDA will approve generic copies. Generic copies are usually priced at a fraction of the price of a new medicine (often known as the “brand” product) and are usually substituted by pharmacists for the brand product at the point of sale.5 Their approval ends the brand product’s exclusivity in the marketplace, and in fact, they usually take the lion’s share of the market.6 There is a paradoxical relationship between the period for exclusive marketing and the premarket research and development performed for FDA approval. If a particular premarket research and development program is more challenging and time-consuming than other programs, the period for exclusive marketing is not longer and may, in fact, be shorter. The exclusive marketing period prior to generic market entry is largely a function of the company’s patents. Certain aspects of patent law doctrine effectively require the application for a patent claiming the active ingredient of a new drug to be filed early in the research and development process. Patents last for a fixed term, which used to start when the patent issued but now starts on the date of the patent application. Either way, much of the patent term can elapse while the company is performing the research needed for approval.7 And the more research performed, the more of the patent term elapses. The period for exclusive marketing of a medicine is also a function of the “data exclusivity” available to the innovator. During this time, generic companies may not rely on the research generated and submitted by the innovator for approval of their own drugs.8 Data exclusivity suffers from a slightly different problem; even where the premarket study period is much longer, the length of the data exclusivity period does not change.